The Question

What I’m thinking is: there are many hedge funds and investors with lots of money who can afford consulting firms, well-equipped, how an individual investor can invest profitably in the stock market in spite of this?

Before getting to the question, I feel it’s always important to try and understand the intent of the question. There is always an underlying root to the question if you look hard enough.

First, the term “individual investor” is very vague but it’s obvious that this person is fairly new to investing.

Does this person want to start buying stocks using value investing methods?

Or is the question asking whether value investing works?

From the additional information noting the resources available to hedge funds and high net worth investors, I’m guessing that the person is also asking whether it’s possible to have an advantage over the big boys.

So with that context, here’s my answer expanded for old school value.

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Can Individual Investors Invest Profitably?

First, here’s a short background on me.

I come from an unconventional investing background because I never took any formal finance or business related classes. But this is quite common.

In fact, I disliked anything to do with finance and business. I had laser tunnel vision on becoming an engineer and that was that.

But life loves to throw curveballs and I started to invest in the 4th quarter of 2007 with about $5,000.

I lost more than half of it on bad advice but it turns out that this curveball was the best thing that happened to me.

Yes, I absolutely concur with Jae’s article. In fact, the number one rule I would state is to DO YOUR OWN THINKING. You don’t have to be a genius to be a successful investor, but it is important to educate yourself and figure out what works and what doesn’t work.

Here’s are several tips that will save you 30 years of chasing elusive profits.

1) Technical Analysis DOES NOT work. You will have the ILLUSION of making money but after all that buying and selling you’ll just about break even.

2) Value Investing DOES work. Its a completely different philosophy and its based on fundamental business principles that have been passed down for 3,000 years.

3) Character is more important than intelligence in successful investing. Character can be defined as hanging in there and buying more, when the stock market declines by 50% because you know you’ve done your research and the companies that you are buying are fundamentally strong so the Stock Market has just handed you a gift, buy discounting their stock price.

You also have to have the humility to admit you are wrong. Huberis is the biggest folly. Don’t worry, if you are honest with yourself you will learn when you are right and when you are wrong. Its that process the process of figuring out what you have done wrong that will make you a better investor.

4) Read everything that Jae says, and particularly read all the books he recommends on his website. You will learn more in a two or three years than many people learn in 30 years of investing. (Take it from me.)

5) Once you’ve put everything together intellectually, you’ll realize that Jae’s spreadsheets are amongst the most powerful analysis tools available to investors (professional or amateur).

6) As a small amateur investor, if you know what you are doing, you will actually beat the pants off the professionals. Warren Buffett has admitted to this. Size is their biggest disadvantage. Once you get too big it is VERY difficult to beat the market. However, if you have a small portfolio you can generate better returns than the big boys.

Lastly, success, is sometimes more about what you DONT do vs what you do do. If you can just resist the temptation (and believe me it will be hard to do) of frigging around with your portfolio constantly and just allow them to grow, you will be able to grow significant wealth over time.

Best of luck (all though you don’t really need it) to your investing activities.

I like the way you touched on characted. I only alluded to it but you are spot on. I’m constantly trying to improve and build a better character because I still make mistakes, but investing is lifelong process.

There are some other books I have on my reading list I need to get to. It was a highly recommended book by a person I look up to so I need to get on it and let you all know what I think.

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